Information pertaining to how to qualify for a mortgage and the latest information about mortgage guidelines.
You Don't Have to be Behind on the Mortgage to get a Loan Modification
Posted 01-12-2009 at 12:08 PM by ShanetheMortgageMan
Since I am relatively close to the epicenter of the foreclosure crisis you might imagine how many homeowners in distress over their current mortgage situation I talk to. Since I am not a loan modification expert, nor do I do loan modifications for profit, I usually refer them over to www.loansafe.org so they can read up on successful loan modification stories from people with their same lender, or who are in similar situations. A good majority of them are usually having trouble making their current mortgage payment due to an ARM reset, going from interest only to fully amortized, or just because of poor budgeting. Occasionally, but a much smaller percentage, I'll hear from people who aren't having difficulty with their payments, rate isn't about to adjust, have budgeted just fine, but are on ARMs which will eventually lead to a dramatic rate change and are trying to be proactive by trying to renegotiate terms with their mortgage lender.
Below is a story from a client of mine in that later situation. It is here in California, but I've edited some parts to protect my client. For some background, the client has great credit, good financial position, had several years left on the fixed period of the ARM, but is in a market where values are falling so if they continue to do so, by the time the ARM does reset, there could very well be value issues. I also won't tell you the exact terms that were granted, as I'm sure the lender doesn't want this information floating around either, but I can tell you the rate was modified to a 5-year fixed rate at an extremely low interest rate (well below current market rates) and then the remaining 25 years fixed at another rate (that is less than 1% higher than current market rates). The client was able to get most of their information and develop their game plan just by reading the posts at www.loansafe.org.
Here is my clients letter to me explaining the process, I hope that you can use this to formulate your plan to get yourself help on your own loan modification and save your home from potential disaster down the road:
First, calling the loss mitigation number was useless. They're swamped with inquiries from people who are already behind, and whenever I called I was routinely told that since I wasn't behind in my payments, there was nothing to be done for me.
Failing that, I got the email addresses of several upper level executives from LoanSafe. I was given a list of about 18 or 20 individuals; it is common practice among some ailing homeowners to take a shotgun approach and send emails to all of them. I thought this was inappropriate, because I thought that it would give the appearance of non-rational reasoning. After all, why would the president of global investments or some random spokeswoman care about my appeal? Instead, I chose about 4 or 5 key executives, including the president, as the recipients of my email.
I knew that these executives must be inundated with requests titled "Please help!", "Desperate! Need a modification!", etc. I also knew that since I wasn't claiming hardship, I needed to bring something different to the table. If you recall, the situation I was in was a interest-only ARM at 6.25% with a second lien hanging over my home. My goal was to fix the ARM, but could not refinance because of my total LTV ratio.
The subject of my email was "Modification request - with a twist". I figured that it might at least pique somebody's curiosity. In my letter, I acknowledged that I was neither in distress nor was I facing an impending rate reset. My motivation for seeking a modification was to ensure some long-term stability during these difficult times. I highlighted the fact that I had made good faith efforts to refinance, but for the reason above was always turned away.
Here's my twist: in my letter, I proposed a modification that would have led to a higher monthly payment. I suggested changing my ARM to a fully-amortized 30 year fixed-rate loan at something like 5.5%, which was close to the prevailing rates (for conforming, though, not jumbo). This would have actually led to a slightly higher payment. I laid out my income and other debts to demonstrate that I would be able to afford the higher payment.
I highlighted my creditworthiness, noting that at one time a specific lender pulled my score and came up a score over 800. I commented that a prime, fixed 30 year loan of a well-qualified borrower would be an attractive financial instrument on the derivatives market. I noted that such an agreement would be advantageous to both borrower and lender. I also suggested that failure to act now could lead to more difficulties in the future, especially if property values continue to drop and a principal write-down is necessary.
Knowing that these financial considerations might not be "interesting" enough to the reader, I added a couple paragraphs which had a little bit of information about my spouse and me, to demonstrate that we're "good people" who deserve consideration.
I didn't exaggerate. I didn't complain. I didn't blame anyone for the loan that I was in. There are a lot of people out there who are in the "it's-everyone's-fault-but-mine" camp, and I do not believe that approach garners as much sympathy or extra attention as before. I took a chance on my approach because I thought it had a better-than-average chance of being noticed. If not, then no harm done; I'd try again later.
Well, obviously I got someone's attention. I was called a week later by an analyst from my mortgage company, and also received a letter from a supervisor who had seen my email message after it was forwarded to her by the president. My modification was approved shortly thereafter. I sent in our first new payment last week, and the final papers were notarized and returned this week. After my mortgage company signs and notarizes their sheet, it will be recorded with the county.
Below is a story from a client of mine in that later situation. It is here in California, but I've edited some parts to protect my client. For some background, the client has great credit, good financial position, had several years left on the fixed period of the ARM, but is in a market where values are falling so if they continue to do so, by the time the ARM does reset, there could very well be value issues. I also won't tell you the exact terms that were granted, as I'm sure the lender doesn't want this information floating around either, but I can tell you the rate was modified to a 5-year fixed rate at an extremely low interest rate (well below current market rates) and then the remaining 25 years fixed at another rate (that is less than 1% higher than current market rates). The client was able to get most of their information and develop their game plan just by reading the posts at www.loansafe.org.
Here is my clients letter to me explaining the process, I hope that you can use this to formulate your plan to get yourself help on your own loan modification and save your home from potential disaster down the road:
First, calling the loss mitigation number was useless. They're swamped with inquiries from people who are already behind, and whenever I called I was routinely told that since I wasn't behind in my payments, there was nothing to be done for me.
Failing that, I got the email addresses of several upper level executives from LoanSafe. I was given a list of about 18 or 20 individuals; it is common practice among some ailing homeowners to take a shotgun approach and send emails to all of them. I thought this was inappropriate, because I thought that it would give the appearance of non-rational reasoning. After all, why would the president of global investments or some random spokeswoman care about my appeal? Instead, I chose about 4 or 5 key executives, including the president, as the recipients of my email.
I knew that these executives must be inundated with requests titled "Please help!", "Desperate! Need a modification!", etc. I also knew that since I wasn't claiming hardship, I needed to bring something different to the table. If you recall, the situation I was in was a interest-only ARM at 6.25% with a second lien hanging over my home. My goal was to fix the ARM, but could not refinance because of my total LTV ratio.
The subject of my email was "Modification request - with a twist". I figured that it might at least pique somebody's curiosity. In my letter, I acknowledged that I was neither in distress nor was I facing an impending rate reset. My motivation for seeking a modification was to ensure some long-term stability during these difficult times. I highlighted the fact that I had made good faith efforts to refinance, but for the reason above was always turned away.
Here's my twist: in my letter, I proposed a modification that would have led to a higher monthly payment. I suggested changing my ARM to a fully-amortized 30 year fixed-rate loan at something like 5.5%, which was close to the prevailing rates (for conforming, though, not jumbo). This would have actually led to a slightly higher payment. I laid out my income and other debts to demonstrate that I would be able to afford the higher payment.
I highlighted my creditworthiness, noting that at one time a specific lender pulled my score and came up a score over 800. I commented that a prime, fixed 30 year loan of a well-qualified borrower would be an attractive financial instrument on the derivatives market. I noted that such an agreement would be advantageous to both borrower and lender. I also suggested that failure to act now could lead to more difficulties in the future, especially if property values continue to drop and a principal write-down is necessary.
Knowing that these financial considerations might not be "interesting" enough to the reader, I added a couple paragraphs which had a little bit of information about my spouse and me, to demonstrate that we're "good people" who deserve consideration.
I didn't exaggerate. I didn't complain. I didn't blame anyone for the loan that I was in. There are a lot of people out there who are in the "it's-everyone's-fault-but-mine" camp, and I do not believe that approach garners as much sympathy or extra attention as before. I took a chance on my approach because I thought it had a better-than-average chance of being noticed. If not, then no harm done; I'd try again later.
Well, obviously I got someone's attention. I was called a week later by an analyst from my mortgage company, and also received a letter from a supervisor who had seen my email message after it was forwarded to her by the president. My modification was approved shortly thereafter. I sent in our first new payment last week, and the final papers were notarized and returned this week. After my mortgage company signs and notarizes their sheet, it will be recorded with the county.
Total Comments 3
Comments
-
Shane, one thing you should point out is the negative consequence to credit when doing a loan modification. The client you are referring to will no longer have good credit. Bloomberg did an article regarding this, here is the link, Cheaper Mortgages Spark Lower FICO Scores for Payers (Update1) - Bloomberg.com
I would caution anyone with good credit to stay away but if you are not going to need credit for 5 years, maybe look into it.Posted 09-22-2009 at 04:41 PM by VictorBurek
-
Victor you are right, but it does depend on the bank offering the modification. The above situation was with a very large bank here in America... and so far, there is no notation on that clients credit reports that indicates that their loan has been modified, or at least that they could see, nor was their FICO score impacted in any way. They actually report higher scores than prior to the loan modification, which is probably proof that there are no negative comments.
However I am aware that many people in the industry are reporting that they have had some damage to their scores after going through the loan mod. Consumer Data Industry Association, which establishes guidelines for reporting to the credit bureaus, is directing lenders to include a special comment code "AC", which used to read "paying under a partial payment agreement". As of this month, the wording of the code is being changed to "paying under a partial or modified payment agreement". This code is supposed to be added to all loans being modified through the Making Home Affordable plan. In November, a new code will supersede this one: CN, "Loan modified under a federal government plan". No one knows how the CN code is going to affect credit scores. Starting this month, loans that are/were modified outside any government plan can also have the AC code attached, but this is listed as an optional action.Posted 09-23-2009 at 09:21 AM by ShanetheMortgageMan
-
For 2012: There seems to be relief for non-Freddie/Fannie loan borrowers
For 2012, it seems there is now an option for non-Freddie Mac or Fannie loans to have some assistance/relief. This will greatly help a lot of borrowers who did not go down the path of a "strategic foreclosure":
http://www.nytimes.com/2012/02/02/bu...financing.html
Quote:
.......
For those with privately held loans, the president will ask Congress to allow the Federal Housing Administration to refinance their mortgages in a program to be financed by a fee charged to large banks based on their size and the riskiness of their portfolios. The estimated cost of the program would be $5 billion to $10 billion, depending on the number of participants. Only houses whose values fall within F.H.A. guidelines, from about $270,000 to $730,000 depending on location, would qualify.
The F.H.A. would use the bank fee to insure itself against the credit risk of taking on the new mortgages, a White House official said.Posted 02-04-2012 at 06:28 PM by me4tux
